Q: how do i set up 2-factor authentication security?

Apple only has 2 Factor for your AppleID.  You can read about that here. http://support.apple.com/kb/ht5570

If you want 2 Factor login for your Mac, you can try Securikey (http://www.securikey.com)  Or just for added protection, you can enable FileVault 2 (http://support.apple.com/kb/ht4790)

See: Switch from two-step verification to two-factor authentication - Apple Support

and: https://support.apple.com/en-us/HT204915

This resolves the problem with unlocking the Mac with AppleWatch.

Good luck!

After a long research I found this and it resolved the Same problem I had:

follow these links:

https://support.apple.com/en-us/HT204915

https://support.apple.com/en-us/HT207198https://support.apple.com/en-us/HT207198

good luck

https://support.apple.com/en-us/HT207198